Is 3% in Retirement Plan Fees Reasonable?

Despite the industry’s efforts to make 401(k) plans more
transparent, accessible and low cost, a national survey by ShareBuilder 401k
found that on average, small business owners who read fee disclosure statements
still consider 3% a reasonable price to pay. Three percent is three times
ShareBuilder 401k’s 1% benchmark.

The survey findings also show that 62% of small business
owners think fee disclosures are clearer now than they were in 2012, which was
the first year that the Department of Labor mandated retirement plan providers
disclose all administrative and investment fees. A majority (70%) of small
business owners who review their fee disclosures feel prompted to comparison
shop. Twenty-nine percent say they plan to look for a new retirement plan
provider.

“While it’s encouraging to see that plan sponsors find the
new disclosures easier to understand, and feel compelled to take action, there
remains a lack of awareness regarding what is a reasonable price to pay,” says
Stuart Robertson, president of ShareBuilder 401k, based in Seattle. “Three
percent is at least three times what plan participants should pay for an
employer-sponsored retirement plan. It is essential to educate owners and
employees on the low-fee options available to all investors.”

Survey findings also indicate that 86% of small business
owners are willing to spend more on their plan in return for increased support
for the plan and for their employees. This includes access to investment
advisers (37%) and employee guidance tools and materials (35%).

“We continue to advocate that no plan charge employees more
than 1% in fees and investment expenses. The more knowledgeable owners and
employees are about fees and their impact on savings, the closer they’ll be to
attaining financial freedom in retirement,” says Robertson. “Over the course of
a 30- or 40-year career, the difference between 1% or 2% in fees can translate
into to hundreds of thousands of dollars in lost retirement savings.”

Other survey findings include:

Small business owners want lower fees. Thirty-five
percent of small business owners say they negotiated or plan to negotiate
better pricing with their current plan provider, while 34% gathered, or plan to
gather, benchmarking data to compare their current plan with alternate plans.
Sixty-five percent of small business owners compared the fees in their plan to
other comparable plans on the market.

Employees are taking a stand. Eighty-two percent of
businesses reported that at least some employees took action as a result of
their 401(k) fee disclosure notice. The survey also revealed 41% of business
owners received requests from their employees for a better understanding of
their plan expenses.

Employers are taking action on their own. Fewer small
business owners (23%) are likely to hire a consultant compared to last year (37%).
Rather, companies are negotiating or planning to negotiate better pricing with
their current 401(k) provider (35%) and gathering or planning to gather
benchmarking data to compare with alternate plans (34%).

For employers who know what their company fee disclosure is,
they can use an online plan comparison tool
to benchmark their plan.

The ShareBuilder 401k Disclosure Survey was conducted by
Wakefield Research among 500 small business owners and decisionmakers offering
401(k) plans at companies with 100 employees or less. The survey was carried
out online between November 19 and December 2, 2013.

ShareBuilder 401k, a subsidiary of Capital One
Financial Corporation, is a provider of 401(k) retirement plans for small and
mid-size businesses serving clients that include the self-employed to those
with more than 10,000 employees. More information about ShareBuilder 401k can
be found here.